Europe and the complex task of taxing internet giants
Logo of Facebook, one of the internet giants (next to Google, Apple or Amazon), against which Europe looks for a strategy to tax its activity
How to pay taxes to internet giants like Google, Apple, Facebook or Amazon? Europe is determined to fight but has not yet defined a strategy to tax the American mega companies that revolutionized the economy.
The idea of imposing a fair contribution to the GAFA – the acronym with which these four technological companies are known – is a real puzzle for tax experts.
The tax rules currently applied to companies are designed for the traditional economy and are based on the principle of the permanent entity: only those that have a physical presence in a country, assessed according to their assets (factories, machinery), can be taxed. of the number of employees and billing.
But Internet companies can offer services in the network being legally installed in the country of their choice, as the states that offer more advantageous tax conditions.
Facebook, for example, obtains its profits thanks to data collected throughout Europe (33 million users in France, 31 million in Germany), which it then sells to other companies.
In that case, while the declared earnings in advertising were minimal in Germany or France, they rose in 2015 to 7.9 billion euros in Ireland, where Facebook has far fewer users (2.5 million) than in those two countries.
Estimation of tax losses in a selection of EU countries by Alphabet and Facebook
Thus, the giants of Silicon Valley set up their headquarters in countries like Ireland, whose taxation for companies is the lightest in Europe (12.5%) and declare there all the gains made in the other countries of the block.
In the case of Google something similar happens. According to a study on Google and Facebook by social democratic MEP Paul Tang, specialist in tax matters, between 2013 and 2015 Germany would have lost 889 million euros in tax revenue and France 741 million.
In addition to Facebook and Google, Apple also settled in Ireland, while Amazon opted for Luxembourg.
– Impose transparency –
According to the European Commission, the effective tax rate on the benefit of digital giants in the EU is on average only 9%, while that of traditional companies exceeds 20%.
As for Apple, the European Commission assessed a little over a year ago at 13,000 million euros the taxes owed, considering that the US giant had benefited from undue “tax benefits” by Dublin in exchange for its implementation in Ireland , which also contributed thousands of jobs to that country.
In August 2016, the European Commission demanded the company reimburse the amount, a decision appealed by Ireland and Apple.
For Brussels, the favoritism treatment provided to Apple by Dublin allowed it to take advantage of an effective tax rate on companies of 1% on their European profits in 2003 – an index that decreased to 0.005% in 2014 – that is to say much less than 12.5% normally in force in Ireland, which was already the lowest in Europe.
Given this situation, several solutions are being studied.
France proposes to tax billing in each European country instead of on profits. The proposal, presented in September by the French Minister of Finance, Bruno Le Maire, to its European counterparts, received according to the French Government the support of a score of countries, including Germany, Italy and Spain.
Other states such as Cyprus, Malta, Ireland or Luxembourg, which benefit from tax competition in the European Union, are opposed.
Some countries prefer that the issue be resolved at the international level, within the G20 or the OECD to prevent countries outside the EU from taking advantage of the bonanza that represent the internet giants in fiscal terms.
Cases or covers for the giant Apple’s iPhone, on November 17, 2017 at a store in Cupertino, California (USA)
For its part, the European Commission announced its intention to present its own proposals in 2018 and advocates a thorough reform of international tax rules.
Brussels dusted off a 2011 project to establish a common and consolidated corporate tax base (CCCTB).
The CCCTB would oblige all multinationals that have an activity in the EU and whose total consolidated turnover exceeds 750 million euros to have a single place of taxation, a single contact with a tax administration.
However, this tax would be distributed in all countries where the company has an activity.
In parallel, the OECD examines a global solution, which it will present to the finance ministers of the G20 and which would also include the United States.
“The Americans are in the same situation as us: their own taxation is not adapted to this economy and they also suffer losses of tax revenues,” said European Commissioner for Economic Affairs, Pierre Moscovici.